2025 (4) TMI 1018 - AT - Companies Law

NCLAT quashes rectification order for violating natural justice principles under Rule 154 NCLT Rules 2016

DECCAN ADVANCED SCIENCES PRIVATE LIMITED Versus ESCIENTIA BIOPHARMA PRIVATE LIMITED, YADAGIRI REDDY PENDRI, SWARNALATHA MANNAM, RAJYA LAKSHMI PENUMETSA, DANDU CHAKRADHAR, AJIT ALEXANDER GEORGE, VIVEK VASANT SAVE, PURUSHOTHAMAN VARADARAJAN, DECCAN FINE CHEMICALS (INDIA) PRIVATE LIMITED, VAMSI GOKARAJU, SURESH CHANDRA PARTANI, KIRAN REDDY PENDRI

NCLAT Chennai allowed the appeal, quashing the NCLT's rectification order dated 10.03.2025. The tribunal held that rectification under Rule 154 of NCLT ... Rectification of order - Exercise of suo motu powers under Rule 154 of the NCLT Rules, 2016, to rectify a docket order, particularly when the principal detailed order was uploaded after the rectification order was passed - vice of audi alterem partem - principles of natural justice - HELD THAT:- The provision of Rule 154 of the NCLT Rules, provides power with the Tribunal of ‘rectification’. The rectification herein would mean only making any clerical or arithmetical mistakes in the order within the scope contemplated under it, arising out of an accidental slip or omission, which could only be corrected by the Tribunal, “on its own motion” or on an application preferred under Sub-rule (2) of Rule 154, which prescribes the format i.e., NCLT-9, under which the application contemplated under Sub-rule (1) of Rule 154, is to be preferred. Exercising the aforesaid powers, the Ld. Tribunal is shown to have passed an order on 10.03.2025, whereby certain rectifications were permitted to be carried in the light of the observations made in Para 11 of the order dated 10.03.2025. The basic parameters for putting a challenge to the said order dated 25.03.2025, as agitated by the Ld. Senior Counsel for the Appellant, is that the order dated 10.03.2025, involving rectification of order under Rule 154 of the NCLT Rules, and the order passed on 25.03.2025, on a memorandum filed by the Administrator, ordering rectification of orders of both 07.03.2025 & 10.03.2025 it is in utter derogation to the principle of natural justice, as the Appellants were not served with its copy nor were heard, and the order was permitted to be modified on the basis of a memorandum preferred by the Administrator above. Thus, they contend that the order happens to be bad in the eyes of law as it suffers from vices of audi alteram partem. How could there be a rectification of a docket order dated 07.03.2025, by an order passed on 10.03.2025 when the order of 07.03.2025 effecting substantive rights, itself was uploaded for the first time on 11.03.2025? - HELD THAT:- It is an admitted case that at the stage of passing of the order on 10.03.2025, or even prior to it no notice of any nature whatsoever was ever issued to any of the parties to the proceedings. Hence, even if the orders of 10.03.2025, is taken as to be an order passed in the exercise of suo motu powers, it would be bad, suffering from derogation of the principles of natural justice, as prior to passing of an order, on much less substantial changes such as arithmetical corrections, the parties are required to be heard, which apparently was not done nor does it reflect that the said power was exercised by the Tribunal in the exercise of suo motu powers. he docket order of 07.03.2025 itself attaches finality to it, upon being uploaded on 07.03.2025. Finality is more particularly attached when, by the docket order of 07.03.2025, itself was directed not to be enforced for the time specified there. The question would be whether the said order at all subsequently without notice to the other party could be suo motu rectified by the Ld. Adjudicating Authority. What effect such rectification would have to the final order, is altogether a different question which can be answered, only when such rectification, if any is passed after hearing the parties to the proceedings. As far as the order, dated 10.03.2025 as rendered in CP No. 44/241/HDB/2023, is concerned, being in violation of the uploading of the docket order of 07.03.2025, coupled with the fact, that, as per available records, no prior notice was issued by the Tribunal even while taking a suo motu cognizance, while passing the order of 10.03.2025, the order would be bad in the eyes of law. Hence, the order of 10.03.2025 deserves to be quashed, and is hereby quashed. Conclusion - The provision of Rule 154 of the NCLT Rules, provides power with the Tribunal of 'rectification'. The rectification herein would mean only making any clerical or arithmetical mistakes in the order within the scope contemplated under it, arising out of an accidental slip or omission, which could only be corrected by the Tribunal, 'on its own motion' or on an application preferred under Sub-rule (2) of Rule 154. Appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in these appeals are:Whether the NCLT could validly exercise suo motu powers under Rule 154 of the NCLT Rules, 2016, to rectify a docket order dated 07.03.2025, particularly when the principal detailed order was uploaded after the rectification order was passed.Whether the rectification orders dated 10.03.2025 and 25.03.2025, which corrected typographical errors and expanded the scope of the original order to include an additional company, were legally sustainable in light of the principles of natural justice, specifically audi alteram partem.Whether the rectification orders passed post-filing of an appeal under Section 420 of the Companies Act, 2013, were maintainable, given the statutory bar under the proviso to Section 420(2) against amending an order once an appeal has been preferred.Whether the absence of notice and opportunity to be heard before passing the rectification orders violated the principles of natural justice.The legal effect and finality of a docket order upon its uploading and whether subsequent amendments without notice can be permitted.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Suo Motu Rectification under Rule 154 of NCLT RulesThe legal framework governing rectification of orders by the NCLT is provided under Rule 154 of the NCLT Rules, 2016. Rule 154(1) allows the Tribunal to correct clerical or arithmetical mistakes or errors arising from accidental slips or omissions either on its own motion or on application by any party. Sub-rule (2) prescribes that such applications be made in a specified format within two years of the final order, excluding interlocutory orders.The Court noted that the order dated 10.03.2025 was passed by the Tribunal suo motu under Rule 154 to rectify a typographical error in the order dated 07.03.2025. However, the principal order dated 07.03.2025 was uploaded only on 11.03.2025, after the rectification was made.The Appellant contended that the rectification could not precede the uploading of the principal order, as the order was not in the public domain before 11.03.2025, and thus the Tribunal lacked jurisdiction to amend it on 10.03.2025. The Respondents countered that the docket order was uploaded on 07.03.2025 itself, bringing it into public domain, justifying the rectification on 10.03.2025.The Tribunal analyzed that the docket order, being a summarized extract containing interim directions, attained finality upon uploading on 07.03.2025. Therefore, any subsequent rectification without notice to parties would be impermissible. The suo motu exercise of power under Rule 154 without notice was held to be contrary to the principles of natural justice.Accordingly, the Tribunal held that the rectification order dated 10.03.2025 was invalid and quashed it.Issue 2: Natural Justice and Audi Alteram Partem Violation in Passing Rectification OrdersThe Appellant argued that the rectification orders dated 10.03.2025 and 25.03.2025 were passed without serving copies of the applications or notices to them, depriving them of an opportunity to be heard, thereby violating the audi alteram partem principle.The Tribunal examined the record and found that no notice was issued to the parties before passing the rectification orders, even though these orders affected substantive rights by expanding the scope of the original order to include an additional company and modifying the management control provisions.The Tribunal emphasized that even for minor corrections, parties must be given reasonable opportunity to be heard before the Tribunal exercises suo motu powers under Rule 154. The absence of such notice rendered the rectification orders legally unsustainable.Issue 3: Effect of Section 420 of the Companies Act, 2013 on Rectification Post-Appeal FilingSection 420(2) of the Companies Act empowers the Tribunal to amend any order within two years to rectify mistakes apparent from the record but includes a proviso that no such amendment shall be made once an appeal against that order has been preferred.The Appellant submitted that an appeal against the principal order dated 07.03.2025 was filed on 14.03.2025, prior to the filing of the Administrator's memorandum seeking rectification on 20.03.2025. Hence, the Tribunal was barred from entertaining or passing any rectification order after the appeal was filed.The Tribunal agreed with this interpretation, holding that the memorandum filed after the appeal was not maintainable and the subsequent order dated 25.03.2025 passed on that memorandum was invalid.Issue 4: Finality and Effect of Docket Order Upon UploadingThe Tribunal analyzed the nature of the docket order dated 07.03.2025, which contained interim directions and was uploaded on the same day. It held that the docket order attained finality upon uploading and was brought into the public domain, thereby attracting legal consequences.Therefore, any subsequent amendment or rectification without notice to all affected parties was impermissible. The Tribunal underscored that the finality of such orders is crucial to ensure certainty and fairness in the proceedings.Issue 5: Scope of Rectification and Expansion of Order to Include Additional CompanyThe rectification orders sought to correct typographical errors but also expanded the scope of the original order from one company (EASPL) to include another related company (EBPL). The Administrator's memorandum detailed multiple corrections substituting 'EASPL' with 'EBPL' and adding references to EBPL in various operative paragraphs.The Tribunal observed that such expansions went beyond mere clerical corrections and amounted to substantive modifications of the original order. Such changes could not be effected under Rule 154 without following due process and affording parties an opportunity to be heard.This reinforced the Tribunal's conclusion that the rectification orders were unsustainable.3. SIGNIFICANT HOLDINGS'The provision of Rule 154 of the NCLT Rules, provides power with the Tribunal of 'rectification'. The rectification herein would mean only making any clerical or arithmetical mistakes in the order within the scope contemplated under it, arising out of an accidental slip or omission, which could only be corrected by the Tribunal, 'on its own motion' or on an application preferred under Sub-rule (2) of Rule 154.''No rectification could have been permitted by the Tribunal, even in the exercise of its suo motu powers, until and unless, all the parties to the proceedings were noticed about the probable order to be passed by the Tribunal on the proposed rectification in the exercise of powers Rule 154 of the NCLT Rules.''The proviso contained under Section 420(2) of the Companies Act, 2013, clearly bars any amendment or rectification of an order once an appeal against that order has been filed.''Once the docket order was brought into the public domain on 07.03.2025, through uploading, no subsequent amendment could have been permitted in that order, until and unless all the parties to the proceedings who are likely to be affected are noticed.''The order dated 10.03.2025 passed in exercise of suo motu powers under Rule 154 of the NCLT Rules, and the order dated 25.03.2025 passed on the Administrator's memorandum filed after the appeal was preferred, are quashed.''The quashing of the impugned orders will not prevent the Respondents from filing a fresh application under Rule 154 of the NCLT Rules for seeking rectification of the order which has to be decided exclusively on its merit taking into consideration the legal consequences flowing from Section 420 of the Companies Act, 2013.'